Kicillof has been locked in intense negotiations with holdout creditors demanding to be paid the full value for bonds they own on which Argentina defaulted. The talks have been overseen by a mediator appointed by a US judge who ordered Argentina to pay the creditors.

The court-appointed mediator, Daniel Pollack, confirmed that no agreement had been reached and “the Republic of Argentina will imminently be in default”.

Pollack said that default “is not a mere ‘technical’ condition, but rather a real and painful event that will hurt real people,” including Argentine citizens, exchange bondholders and the holdout investors.

The ratings agency, Standard & Poor’s, had earlier declared some Argentine bonds to be in “selective default” because the country did not make a $539m interest payment due on 30 June. Kiciloff denied the country was in default and suggested that Standard & Poor’s was not an “impartial referee.”

Argentina tried to make the payment but was prevented by a New York judge as part of an effort to force the country to settle a dispute with US creditors. The judge, Thomas Griesa, ruled Argentina could not pay the restructured bonds back unless it also paid more than $1.5bn to the holdout investors. Argentina has insisted it cannot afford to do both.

The ruling provided for a 30-day grace period, which fell due on Wednesday. The payment was due to over 93% of Argentina’s bondholders who accepted the debt restructuring deals in 2005 and 2010, wiping out 70 cents on every dollar of their holdings, and which the government wanted to honour.

Kicillof, speaking at the Argentinian consulate in Manhattan, said the country had offered the holdout bondholders the same terms as previous debt swaps. He called their insistence on full payment “extortion” and insisted the country would “fight it with all our weapons” .

A fresh default is not expected to affect Argentina’s economy as it did more than a decade ago, when dozens were killed in street protests and the authorities froze savers’ accounts to halt a run on the banks.

There will still be consequences, however, as it is expected to worsen an economy already in recession, weaken the currency as more Argentines seek to hold dollars, and put pressure on foreign reserves. It could also raise soybean prices, as the country is the world’s third-largest soybean exporter.

“The full consequences of default are not predictable, but they certainly are not positive,” Pollack said.

Led by the country’s president, Cristina Fernández de Kirchner, Argentina has refused to pay investors she has branded “vulture funds”, which were holding out for full repayment. The fear in Argentina is that any deal to repay the holdouts in full would trigger lawsuits from the bondholders who accepted the earlier deals, demanding to be paid on similar terms. The government in Buenos Aires estimates that the associated liability could run to as high as $15bn.

The holdouts are US hedge funds spearheaded by the billionaire Paul Singer’s NML Capital, an affiliate of Elliott Management, and Aurelius Capital Management.

Markets had been optimistic that a deal could be hammered out at the eleventh hour, with the value of the country’s bonds and shares rising.

Hopes were boosted by the prospect of a potential intervention by Argentina’s banking association. Under the proposals, a consortium of Argentinian banks would offer to buy the country’s debt held by the holdout investors.